Commentary on how China and the world are adapting to each other -- or not.

July 03, 2009

China, Inc. Myth Exposed Yet Again

Welcome to The China Track,
where you will find commentary about the political economy of China's
engagement with the world. One of the most well-worn phrases of
contemporary China is, "get on the international track" (与国际接轨), which
implores China and individual Chinese to adapt to global norms and
international best practices. But all tracks run in two directions, and
the world is also grappling with adjusting to China in ways big and
small. Those who live and work in China must adjust to the amazing pace
of life, cab drivers, Chinese food, and rules and procedures that vary
dramatically from those at home. Companies and societies the world over
are affected by China as the world's fasting growing consumer and
producer. As someone who has lived in China off and on for 5 of the
past 20+ years and who does research on these issues, it's an honor and
challenge to contribute to this conversation. I welcome your comments,
feedback, tips -- and sympathy.

This week two stories have
reached a stage that shows the complexity of China's policymaking
process and challenges the myth of "China, Inc." -- a well-oiled
centrally controlled, hierarchical policy process.

Case #1:
Green Dam. From seemingly out of no where, the Chinese in early June
announced all Windows-based PCs sold from July 1 had to come with the
anti-porn Green Dam software pre-installed. It took about 10 seconds
for the Chinese Internet community to essentially unleash an electronic
riot in opposition. Rebecca MacKinnon's RConversation
has captured much of the conflict. If there was more time to quietly
engage the Chinese government, foreign industry could have let the
Netizens take the entire lead, but with time running short, the
international business community organized quickly and loudly, bringing
out the big guns in the form of the US Trade Representative and
Secretary of Commerce threatening China with a WTO case if they didn't
back down. Low and behold, China did just that, and the dam burst.

The
story challenges the China, Inc. picture in several ways: 1) The
Internet allowed Chinese society into the policy debate; 2) Chinese
industry showed through their actions (not installing Green Dam) that
they opposed the policy. Too bad for Sony and Acer; they read their
cards wrong and apparently were obediently intstaling Green Dam. Oops!
3) A Chinese software company played on the Chinese government's
vulnerabilities and used the "protect our children" slogan to sell MIIT
a defective product. One hopes MIIT included a clause in the contract:
"If you sell us pirated software and a firestorm erupts, we get our RMB
40 million back." 4) From my own observations, MIIT internally was not
fully unified behind Green Dam.; and 5) Most assuredly, the firestorm
attracted the attention of senior officials, and they put the cabash on
Green Dam for the time being.

Case #2: The deadline for
concluding negotiations over annual iron ore benchmark prices came and
went on July 1 without a deal. The Chinese side was "led" by the China
Iron and Steel Industry Association, but CISA never was able to
exercise any discipline over those it claimed to represent. By
contrast, the oligopoly of the Big 3 iron ore producers (Rio Tinto, BHP
Billton, and Vale) held together amazingly well. Small and medium-sized
Chinese steel producers and traders went behind CISA and negotiated
private deals to buy iron ore on the spot market. The Big 3 had
previously not sold to the smaller producers since they had enough
contract business with the larger Chinese mills via the benchmark
contract system. Going around them was pure genius -- actually, it's a
simple and effective strategy. What is also amazing is that despite the
economic importance of the industry and the political connections of
the largest steel firms, they could not get the Chinese government to
throw them a bone and offer them any sort of regulatory support that
might have given them a fighting chance at the negotiating table.

That
China is more pluralistic and the process more complex and subject to
innumerable forces is overall a positive development. China is less
likely to go hell-bent down a crazy path because internal opposition
will mobilize to tamper down such desires. China is having a difficult
time manipulating international prices despite its size because
fragmentation trumps size any day of the week. 5-6 Japanese steel
companies could sit and decide prices for steel in Japan because they
controlled 80% of the market; China's top 70 firms don't control that
much.

China's growing pluralism has consequences across the many areas in which China engages the world, and I look forward to
discussing those issues in future entries.

Comments

You can follow this conversation by subscribing to the comment feed for this post.

Congratulations on your "China Track" blog!

Case#1 well shows Chinese government's intention to strengthen the censorship on information distribution via internet, although the claimed purpose is to protect the youth. Actually, if you type "chengren" ("adults") and "seqing" (porn)-in Chinese, you can find little substance you want to see through google, Yahoo! and Baidu. Google may even show you a blank page. If you use the English words, you will find a lot of websites, but you cannot open them unless you use some kind of proxy (many other websites such as youtube and blogspot are treated the same way). All these show the internet has been pre-filtered without such programs. We already have this kind of programs for free or for sale. Not every family has children living with them. So it is quite understandable that people protest this policy and suspect its real intention, as some other information and data may be blocked without letting them know, also admitted by the program's developers. The constitutional rights of free express should be guaranteed by internet.

It is also interesting to notice the action of the majority computer manufacturers. Only two followed this policy... It seems when they have to make a decision, they tend to satisfy the customers, not the policy makers-at least it is in this case. MIIT is far more arbitrary than strategic in implementing this policy. Anyway, it is interesting to see what the government will do in the next few months.